A "world-class" ethane cracker and ethylene derivatives facility, fed by shale gas reserves, is being evaluated by Chevron Phillips Chemical Co. LP for siting in the Gulf Coast region.

The Woodlands, TX-based chemical unit, which is jointly owned by Chevron Corp. and ConocoPhillips, expects to complete a feasibility study by year's end on whether to proceed with a facility at one of its existing sites.

"We are finalizing our evaluation of potential sites and advancing discussions with EPC [engineering, procurement and construction] contractors," said COO Tim Taylor. "Our company is already a leading light cracker operator in the U.S. Gulf Coast region and an established supplier of olefins, polyolefins and alpha olefins globally. Our technology portfolio, organizational capability, integration with our parent companies and petrochemical infrastructure make us uniquely suited to execute this potential investment."

Taylor said "a project of this nature would afford Chevron Phillips Chemical an exciting opportunity to meet growing customer demand while at the same time supporting national, state and local economies in a very meaningful way. We intend to expedite our development decisions to capitalize on the advantaged feedstock position that shale gas resources could bring to the chemical industry in the U.S."

Producers operating in the Marcellus Shale are struggling to manage ethane output, and several pipelines are being considered to move natural gas liquids (NGL) products to Canada and other U.S. regions (see Shale Daily, March 28; March 24; Dec. 23, 2010). However, there already is a strong market in the petroleum/petrochemical areas, and the Greater Houston area, with its massive oil and gas processing complex and Houston Ship Channel, tops the list.

"For the world's petrochemical producers, the overall progress toward economic recovery brings a renewed demand for products and signals revitalized prospects for growth," said Charles T. Drevna, the president of the National Petrochemical & Refiners Association (PRA).

Drevna was a keynote speaker at the PRA's 36th International Petrochemical Conference, which kicked off Monday in San Antonio.

"In the United States, prospects for growth and development are strengthened by the potential additional supply of tremendous natural resources right in our own back yard," Drevna said. "The natural gas reserves of the Marcellus Shale formation in the northeastern U.S., the Texas Eagle Ford reserves and the Rocky Mountain formations could sustain and grow not just the petrochemical industry, but manufacturing in general and the American economy as a whole -- if they're developed properly."

Drevna told the audience that it was "important to remember, too, that these opportunities are not just good for our businesses and our industry -- they are also good for consumers, our society and our way of living."

Kevin Swift, chief economist with the American Chemistry Council, said in a speech last week in Houston that the Gulf Coast petrochemical industry is benefiting from higher gas production and low gas prices. New infrastructure and more jobs are sure to follow, he told the Houston Economics Club.

"Capital investment is now being reconsidered," said Swift. Investments a decade ago were "largely being written off," as petrochemical companies redirected their money to the Middle East and China. In 2004 ethane-based U.S. high-density polyethylene producers had the second highest cost structure in the world. However, shale gas production has changed the outlook.

According to Swift, if U.S. ethane production were to increase by 25%, it would spur $16 billion in new investments in U.S. chemical plants and create close to 17,000 jobs. Most of the big investments -- and jobs -- would benefit the Houston region.

"Houston is the Jerusalem, the Mecca of the chemical industry," Swift said.

Stephen Pryor, president of ExxonMobil Chemical Co., said earlier this month a 20% surge in the past five years in gas supply from unconventional resources has increased U.S. ethane production and lowered the feedstock's costs. He was a speaker at IHS Cambridge Energy Research Associates' CERAWeek 2011 in Houston.

"We see ethane reemerging as an advantage feedstock in North America, reflecting the growing production of unconventional natural gas and the increasing importance of gas in the world energy mix," said Pryor. "The current strength of the U.S. petrochemical market contrasts with conventional wisdom of just a few years ago when it was believed that U.S. petrochemical production would decline, feed slates would get heavier, and the U.S. by 2010 would flip into a net import position..." In reality, "exports grew by about 28% last year."

However, Pryor told the audience that he doubted that there would be a surge in grassroots construction. More likely, he said, was the conversion of heavy feedstock facilities, which is part of Chevron Phillips Chemical's feasibility study.

Chemical Market Associates Inc. said in a report last week North America's "gas price advantage," resulting in part from increased shale gas production, could lead to the construction of two North American ethane crackers by 2015. Capacity growth in North America would depend on exports to regions with more expensive raw materials, the consultant said.

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